According to Study, Insurers Continue to Price-Gouge Doctors Despite Falling Med-Mal Payouts

October 12, 2004

With the issue of medical malpractice and “tort reform” becoming an increasingly discussed topic this election year, Americans for Insurance Reform (AIR) announced the release of a new study of medical malpractice insurance around the country, based on the insurance industry’s own data. Its findings may be startling to some:

Contrary to what the insurance and medical lobbies have alleged, the years 2002 and 2003 saw no “explosion” in medical malpractice insurer payouts to justify skyrocketing rate hikes. In fact, rather than exploding, inflation-adjusted payouts per doctor have dropped for the last two years. Payouts (in constant dollars) have been essentially flat or dropping since the mid-1980s.

Second, medical malpractice insurance premiums rose much faster in 2002 and 2003 than was justified by insurance payouts. These price hikes were not connected to actual payouts, jury verdicts or the legal system. Rather, they reflect dropping interest rates and losses experienced by the insurance industry’s market investments.

According to Joanne Doroshow, executive director of the Center for Justice & Democracy and AIR co-founder, “These findings undermine one of the central claims of interest groups who seek to blame the legal system for doctors’ insurance woes. In fact, the study shows that the causes of, and solutions to, this crisis lie not with the legal system (i.e., “tort reform”) but with reforming regulation of the insurance industry, which has been unfairly charging doctors excessive rates to make up for their own investment losses.”

The study by AIR, a coalition of more than 100 consumer and public interest groups representing more than 50 million people, makes nearly identical findings to those reached in similar AIR studies of national trends released in 2001 and 2002.

Specifically, the study, Stable Losses/Unstable Rates reportedly shows that the real reasons medical malpractice insurance rates have risen so dramatically in the last two years are market forces and dropping interest rates – not, as the insurance industry claims, because of a sudden massive increase in medical malpractice jury awards or payouts, which, in constant dollars, have been decreasing for the last decade.

Author of the study, J. Robert Hunter, director of Insurance for the Consumer Federation of America, former Federal Insurance Administrator and Texas Insurance Commissioner, said, “The current jump in prices doctors pay is a result of a combination of two insurance company practices: (1) the insurers’ aggressive under-pricing to gain market share when interest rates were high, coupled with (2) the insurers’ classification plan that charges some high-risk doctors (such as OB/GYNs and neurosurgeons) for all of the cost of the high-risk cases referred to them by all other doctors. What is crystal clear is that what did not cause this crisis was an increase in losses. There simply is no evidence of that.”

Hunter added, “There is only one way to solve this problem: reforming the insurance industry. State lawmakers must strengthen state insurance laws in order to end the boom and bust swing from illegal overpricing, such as the rates doctors are being asked to pay today, to illegal and inadequate underpricing, which will be seen when the market softens later in the cycle. Fortunately, the hard market price jump is behind us and we are now entering the softer market so legislators have a decade or so to grapple with how best to do this before the next hard market hits the nation.”

For more information on the study, visit .

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